Aluminum Avoids Metals Slump as Automaking Drives Demand

At a time when other commodities are slumping, aluminum is making a comeback as automakers under pressure to build more fuel-efficient cars increase their use of the lightweight metal.

While copper prices are down 13 percent this year and iron ore has slipped 11 percent, aluminum has gained 1.1 percent. The rise is small but significant, marking an improvement from a year in which the price of aluminum fell to its lowest level since 2009. Meanwhile, producers including Alcoa Inc. and Rio Tinto Group predict demand will continue to rise over the next few years as the metal grows in importance to car makers.

“Aluminum looks very different from other commodities,” Oleg Deripaska, the billionaire president of the world’s largest producer, United Co. Rusal, said in an interview in Davos last week. “If we look at the developments which we made to develop new alloys, new applications in cars, construction, packaging and manufacturing, I think this is a reward which we must have for the last seven years of suffering.”

Rusal expects car-maker consumption to rise 65 percent to 23 million metric tons by 2020, Steve Hodgson, director of sales and marketing, said by e-mail.

Aluminum has long been used in car doors and roofs, but unlike steel, it’s difficult to weld, limiting its use in other automobile parts. Breakthroughs in welding technology, though, helped Ford Motor Co. produce its top-selling vehicle, the F-150 pickup truck, with an aluminum body, and is opening up its use elsewhere.

That’s particularly important when the U.S. government target for fuel efficiency is set to rise to 54.5 miles per gallon by 2025, almost double the figure for 2011. The lighter the car, the more fuel-efficient it can be made.

‘Stamping Processes’

“Technological advancements have made alloys of the metal stronger than steel,” Steve Man, an analyst at Bloomberg Intelligence, wrote in a report last week. “New stamping processes have enabled automakers to produce aluminum body parts that meet tight specifications. They can also make them in intricate shapes.”

Demand for aluminum auto sheets in North America will almost quadruple to 1.78 million tons in the decade through 2025, according to Alcoa, the largest U.S. producer. Increasing orders for airplanes are also boosting consumption.

“Aluminum being used more and more in vehicles is an inevitable trend,” Vanessa Lau, an analyst at Sanford C. Bernstein & Co. in Hong Kong, said by phone. “The significance of the Ford F-150 is that finally and for the first time aluminum is being deployed at mass production. This shows that it can become a substitute for steel.”

Weight Strategy

Ford declined to discuss its use of the metal. Daimler AG uses a variety of materials including aluminum and carbon-fiber plastics as part of its weight strategy, according to Koert Groeneveld, a company spokesman.

Aluminum prices last year fell to their lowest since 2009, and are now about 33 percent lower than their 2011 peak of $2,800 a metric ton. Looking forward, Alf Barrios, Rio’s head of aluminum, said in December he expects demand for the metal to grow 4 percent annually through 2025 on increasing use of the lightweight metal in the transport industry, including both cars and airplanes.

“If you want to survive and improve your margins, you have to focus on high-value products and eliminate the commoditized ones from the portfolio,” said Bernstein’s Lau, who was previously chief financial officer at Alcoa’s global rolled products group, which supplies Ford.

European Cars

In Europe, new cars already contain an average of 309 pounds (140 kilograms) of aluminum each and transport accounts for 40 percent of the use of the metal, according to the European Aluminum Association.

The region’s third-largest producer, Norsk Hydro ASA, working with customers including Daimler’s Mercedes-Benz unit, has succeeded in manufacturing a large side panel in one piece, reducing the welding requirements and cutting assembly costs.

“Producing side panels in one-piece aluminum was a dream for the auto industry, and now we are increasing production to meet rising demand,” Hydro’s Chief Executive Officer Svein Richard Brandtzaeg said in an interview.

Hydro is investing 130 million euros ($147 million) to increase output fourfold for car makers from its plant in Germany, and Alcoa shipped a record volume of automotive aluminum sheet last quarter.

Steelmakers, meanwhile, are trying to counter the rise of aluminum with their own new products. ArcelorMittal, the world’s biggest steelmaker, in September said a new range of products for automakers can save as much as 384 pounds, or 23 percent of the weight of a pickup’s cab, box, frame and closures, allowing vehicles to meet emission standards in Europe and the U.S.

It may be too late. Ducker Worldwide LLC, a Troy, Michigan-based consultant, says it sees aluminum use in cars reaching a “critical mass for an explosive period of growth from 2015 to

2025.”

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